Deloycheet, Inc. v. Beach (In re Beach)
Deloycheet, Inc. v. Beach (In re Beach)
Opinion of the Court
MEMORANDUM DECISION
In this adversary proceeding, plaintiff Deloycheet, Inc. (“Deloycheet”) seeks to establish and except from discharge a $400,000 debt that arose as a consequence of the actions taken by the defendant, and debtor, Corbett James Beach, III (“Beach”), on the grounds of fraud, under 11 U.S.C. § 523(a)(2)(A), and willful and malicious injury under § 523(a)(6).
The court has considered the testimony and exhibits offered by the parties at trial. For the reasons stated herein, the court finds in favor of the plaintiff on its § 523(a)(2)(A) count and its claim for damages under the UTPA. Punitive damages will not be awarded. The court shall dismiss the plaintiffs § 523(a)(6) claim, with prejudice.
A. FACTS
1. Organization of Plaintiff Deloy-cheet Inc.
Deloycheet is an Alaska Native Village Corporation located in Holy Cross, Alaska on the Yukon River.
Deloycheet is governed by a nine-member board of directors, and its subsidiaries are each governed by smaller boards whose members are appointed by Deloy-cheet’s board of directors.
Deloycheet holds board meetings periodically throughout the year to review the corporation’s financial information and budget, and to consider any items or transactions placed on the agenda by its staff. According to Aloysius, if management wanted Deloycheet to enter into a transaction, the item would be placed on the board of directors’ agenda, and an infor
Historically, Deloycheet was able to generate a small profit from HCO, but relied upon monies received yearly under Section 7(j) of ANCSA. According to Aloysius, the 7(j) funds are received annually in May. The amount received ranges between $800,000.00 and $750,000.00, but averages $500,000.00.
2. Defendant Beach is Hired by De-loycheet.
Trudy Sobocienski served as Deloy-cheet’s chief executive officer from August 2010 until May 2012.
Defendant Beach was hired by DDC in mid-2011 to fill this position.
Beach’s employment contract required him to “devote his full time, attention, and best efforts to the business and affairs” of DDC.
3. Deloycheet’s Teaming Agreement with Sylvain Analytics.
At the time Beach was hired, Deloycheet had entered into a Teaming Agreement with Sylvain Analytics, Inc. (“SAI”), an 8(a)-certifíed veteran and minority-owned small business located in Reston, Virginia
Soboeienski had met Sylvain at an 8(a) government contracting conference in early 2011.
The Teaming Agreement was entered in the hopes that it would help DDC obtain 8(a) government contracting opportunities. Beach understood the agreement as a notice, rather than a contract, whereby two companies “go steady” to see if they can develop business opportunities that would benefit both of them. He believed that SAI benefitted from the agreement because Alaska Native corporations receive certain priorities with the SBA that are not offered to other 8(a) corporations. SAI would reap the benefit of these priorities if it could work with DDC on 8(a) contracts. Conversely, Beach understood that the
In spite of the perceived benefits, no work was ever obtained or performed under the Teaming Agreement.
4. The HCO loan to SAl.
Shortly after Beach started with DDC, he and Sobocienski exchanged numerous emails with Sylvain regarding a potential loan from DDC to SAL On October 5, 2011, Sobocienski forwarded Sylvain questions "from our Executive Management Team" about SAT's intended use of the borrowed funds, and whether it would be "possible/desirable for DDC to purchase a % of [SM] as opposed to making a loan."
Sylvain emailed a response to Sobocien.. ski the same day. He explained that he was the sole initial investor in SAl, which was an "S" corporation that he controlled 100%. The purpose of the loan was to generate "working capital" to cover the cost of new staff.
Beach testified that he was impressed with SAl, and by what Sylvain and his team could do managing the massive amounts of data belonging to various ~ov-ernmental entities. When questioned as to the basis for this impression, he testified that he had checked with the SBA regarding SAl's viability, and believed that the company had good contracts, good receivables, and a realistic expectation of acquiring good contracts in the future. He also le~irned that Sylvain had giaduated from Harvard Business School and was a former Marine. Beach further testified that he had gone to Sylvain's office and seen his operation in action, He had a high opinion of Sylvain and SAl, and believed the business "would go crazy." He maintained that his inquiries with the SBA and his personal investigation of Sylvain and SAl satisfied any due diligence requirements for a prospective loan. However, he conceded that he never inquired as to the amount of SAl's existing debt, or the number of its other creditors, nor did he conduct a financial analysis of the company.
Sylvain sent another email to Sobocien-ski on October 18, 2011, with an attachment regarding "DDO Ownership Hybrid Proposal."
Sylvain also provided Beach a projected profit and loss statement for SAI.
On October 27, 2011, Beach emailed Syl-vain with a follow-up question about SAI’s “current cash flow and our participation.”
We can certainly help with the next couple of months payroll [and] as we ramp our own cash flow we will be able to assist further. Is it possible for us to work together after the first two months to meet your payroll with some of our cash flow and some of yours? We will ultimately pay you the full amount for either 10% or 20% ownership in your company. Our cash flow projections are such that we should be in a position to make your payroll in full without on our own [sic] by February 2012.33
Beach signed this email as the “EVP-Business Development” for Deloycheet’s subsidiary, DDC, Sylvain replied the same day that he could “definitely work with you on this,” and it would not be a problem to use both SAI’s and DDC’s cash flow to meet SAI payroll for the first two months.
Although these email .exchanges contemplated a transaction between DDC and SAI, it was Deloycheet’s other subsidiary, HCO, who entered into the transaction with SAI. At HCO’s October 28, 2011 board meeting, Beach presented a proposal whereby HCO would purchase shares in SAI for $100,000.
By early December 2011, the HCO transaction still had not been firmed up, although the exact reason why is unclear. On December 2, 2011, Sylvain sent an email regarding “CEO’s Corner (Weekly Management Update),” which discussed the status of the “HCO Support/Investment in [SAI].”
In January 2012, the proposal for HCO’s involvement with SAI was changed by So-bocienski and Beach, with the approval of the HCO board, to a short-term loan in the amount of $100,000.
On January 23, 2012 Sylvain sent another email to SAI’s management, under the subject line “CEO’s Corner V,” following up on the HCO transaction. He wrote:
[Sobocienski and Beach] from HCO were in DC and the news is that HCO will not be seeking ownership in [SAI]. Even thopgh we had anticipated for this purchase to take place, we have adjusted our financial plan and remove [sic] all funds anticipated from HCO. The funds that we had received for payroll support will be paid off by June 30th, 2012.46
There is no evidence that a loan agreement or promissory note was ever executed, or that any of the terms of the HCO loan were ever reduced to writing. Nonetheless, between October 30, 2011, and February 2, 2012, HCO made four wire transfers totaling $100,000 to Sylvain Ana-
5. Beach and Sobicienski Change Their Status with Deloycheet, and Tighten Their Ties with SAI.
A. The Professional Management Agreements.
Beach testified that he became frustrated with the Deloycheet board. He said he was given a lot of latitude in his job, but that it took a while to present new ideas to or have decisions made by the board. He also came to the conclusion, based on the board’s financial concerns, that it was unlikely that he would receive a performance bonus in the near future. In response to these concerns, both he and Sobocienski contemplated changing their working relationship with Deloycheet from employees to independent contractors. Beach rationalized that this would save Deloycheet money, while allowing him to supplement his income from other sources if he worked as an independent contractor.
Beach and Sobocienski entered Professional Management Agreements with De-loycheet effective January 15, 2012.
The agreements specified that Beach and Sobocienski, in their capacities as professional managers, were not employees of Deloycheet but were instead providing services as independent contractors. Yet, the agreements did not alter the amount of annual compensation to be paid to either of them; Beach was still to receive his annual base compensation of $120,000, and Sobo-cienski’s annual base compensation remained $130,000.
The Professional Management Agreements could be terminated without cause by either party, in which event Beach and Sobocienski would be entitled to six months of severance pay at the compensation rate in effect at the time of termination.
B. Deloycheet’s February 2012 Board Meeting.
At a board meeting held February 25, 2012, Deloycheet’s president, Eugene Paul,
Beach gave a report regarding DDC’s ongoing projects in Minot, North Dakota. Per the minutes, the primary business for DDC in that location was flood restoration. Electrical services were also provided. Beach advised that “[w]ork is flowing in,” and projected that 2012 would be a “benchmark year for revenue.”
Although Beach presented a 'positive outlook for DDC’s projects, the overall financial report presented at Deloycheet’s February 2012 meeting was much less optimistic. The accountants stated that De-loycheet was rapidly losing equity, and had never been in so much debt. The minutes note that one of the accountants told the board: “the more revenue Deloycheet produces the more money it loses.”
The next item discussed was a financial report for HCO. During this portion of the meeting, board member Aloysius asked about the $100,000 loan to SAI. At trial, she testified that the HCO loan had never before been presented to the full Deloy-cheet board; she had first learned of it in one of the weekly reports she received from Sobocienski and Beach earlier in February, Aloysius noted that Deloycheet itself was in a cash flow crisis, and not in a position to give out loans. She said she was appalled that a loan had been extended to a company that could not meet its own payroll. She asserted that the transaction had not followed the proper procedure for approval; it should have been put on De-loycheet’s meeting agenda, with information about the transaction sent out beforehand in the meeting packet so that the
C. Beach and Sobocienski Form Alaska Native Enterprise Developers, Inc., and Turn Their Efforts to SAI.
In the midst of Deloycheet’s scrutiny of the HCO loan to SAI, and contemporaneously with the negotiation of their new Professional Management Agreements, Beach and Sobocienski approached Sylvain with the idea of working individually with SAI. On February 1, 2012, more than three weeks before the Professional Management Agreements were ratified by the Deloycheet board, Beach wrote an email to Sylvain, with a copy to Sobocienski, in which he stated:
[Sobocienski] and I are excited about moving forward with you to launch [SAI] to a higher level. You have done an amazing job building the company this far. [Sobocienski] and I believe that by engaging us we can many [SAI] to the right ANC, bring an investor with $500,000 to $2 million, and bring additional clients. As part of the ANC relationship we can help to build out the development of that business. I have had several conversations with my investment banker contacts in NYC ... about what is happening at SAI. [One] has current software holdings and he has affirmed my belief that a public offering may in fact be the most lucrative exit strategy for [SAI].60
In closing, Beach said he looked forward to their upcoming meeting' in Orlando “as well as the large potential that we have together.”
The day after Beach sent this email, he and Sobocienski signed Articles of Organization as the organizers of a new limited liability company, Alaska Native Enterprise Developers, LLC (“ANED”).
Beach testified that “The Next Level” was simply a proposal, or opportunity, that he believed he and Sobocienski could present to SAI based on their anticipated independent contractor status. He understood the Professional Management Agreements gave them the chance to work simultaneously for other businesses. When he was asked if his intent was to receive $10,000 monthly from both SAI under the ANED joint venture, and Deloycheet as an independent contractor, so that he would suddenly double his income and make $240,000 per year, Beach responded that he hadn’t actually thought about this detail. He testified that he didn’t think his plan was to do both jobs at the same time. Rather, if he got the opportunity to work with Sylvain, he intended to take it. He told no one but Sobocienski about the proposal with SAI. He also testified that he hoped to somehow involve HCO in the joint venture with SAI, although “The Next Level” proposal says nothing about HCO, DDC or Deloycheet. Beach explained that there was always “the assumption” that the plans with SAI would ultimately benefit Deloycheet as well.
On February 27, 2012, two days after the Deloycheet board meeting, Sylvain forwarded a draft management agreement by email to Sobocienski at her DDC email address and to Beach at one of his personal email addresses.
Sobocienski responded to this email the following day. She wrote that she would get back to Sylvain over the weekend, and asked him to use her personal email addresses in the future.
On March 22, 2016, Sobocienski sent an email to Beach, marked high priority, which included a revised management agreement with SAI.
The following day, Beach sent an email to Sylvain regarding a “couple of things I forgot.”
Sobocienski’s March 22 email to Beach indicated that she was ready to sign the revised management agreements. Beach testified that he couldn’t recall signing these documents, however. He said he may have, but didn’t remember, though in earlier deposition testimony he denied signing the management agreements.
D. Beach’s Efforts to Find an Investor for SAL
While discussing the exact parameters of his new relationship with ANED and SAI, Beach was soliciting investors for SAI. On March 14, 2012, he contacted one company, Seneca, regarding a “software opportunity” with SAL
Beach testified he was now trying to find a $1.5 million investor for SAI. SAI would in turn use $240,000 of the funds to pay ANED. Beach said Seneca was a Native company in the Lower 48 that had an interest in SAI, and he had tried to get HCO involved “as a tag along to that opportunity.” Beach also approached a doctor as a potential investor. He and So-bocienski met the doctor in Atlanta to give a presentation regarding SAI. Beach could not recall the exact date of the meeting, though an email from Sylvain to the doctor, dated April 27, 2012, references an upcoming meeting the following Monday, April 30.
Beach was asked if his travel expenses at this time were paid by HCO or SAI. He responded that he couldn’t recall specifically, but that during his trips, he would also present opportunities on behalf of HCO. For this reason, he said HCO may have paid his travel expenses.
Sometime in April 2012, a draft joint venture plan between SAI and an unidentified 8(a) Alaska Native corporation was prepared.
6. Late April to Early May 2012— Beach Pitches a Spray Foam Transaction to DDC.
In addition to his efforts to procure an investor for SAI during April 2012, Beach was also preparing a proposal for DDC to purchase a spray foam business in Minot, North Dakota. He emailed Sobocienski about the proposal on April 25, 2012, together with an attached “Proposal Review Template and Checklist.”
Beach’s email to Sobocienski stated that “the deal is pretty strong but has to be executed pretty quickly, by May 7th.”
The DDC board approved the spray foam proposal at the May 8, 2012 meeting. As of this date, however, Beach had already signed a Purchase and Sale of Business Agreement, dated May 1, 2012, on behalf of DDC, to buy North Dakota Spray Foam (“NDSF”).
The spray foam agreement stated that the assets being sold to DDC included equipment, goodwill, and multiple URLs and websites.
7. Beach and Sobocienski Resign from Deloycheet, and Beach Arranges the $400,000 Loan.
A. Resignation Letter.
In May 2012, Sobocienski mailed a letter of resignation to Deloycheet, on behalf of herself and Beach.
The letter gave notice that Sobocienski’s and Beach’s “formal resignation” was effective May 25, 2012.
Aloysius testified that this letter was not received by Deloycheet until after its effective date of May 25th. She also stated that it had been simply tucked in a file on receipt, so the board was not aware of it immediately.
Beach testified that he and Sobocienski had previously discussed their “exit strategy” from Deloycheet with Paul. He said there was an understanding that they would continue to be available to Deloy-cheet on an hourly basis after they resigned. When asked whether this plan had been written down anywhere, he said a time line and transition plan had been submitted, and was somewhere in the board minutes. He maintained the plan was “certainly common knowledge” at De-loycheet. No other testimony or documentary evidence supports these contentions, however.
B. The Transaction at Issue— a $400,000 Loan from Deloycheet to SAL
After the letter of resignation had been sent, but before the May 25 effective date, Beach had a telephone conversation with Deloycheet’s president, Eugene Paul. Beach believes that the conversation occurred on May 18, 2012. The parties have stipulated that the purpose of the call was to recommend that Deloycheet make a $400,000 short term loan to SAI.
During the phone conversation, Beach did not tell Paul about his involvement with Sylvain, or ANED’s proposed joint venture with SAT. Beach did not mention that he and Sobocienski had submitted a letter of resignation. Nor did he bring up the fact that the HCO loan to SAI was still outstanding. Further, he did not tell Paul that he had been trying to find a much larger investor for SAI, without success, for a couple of months, or that the $400,000 loan from Deloycheet would be used for SAI’s payroll.
At trial, there was conflicting testimony about the content of Beach’s telephone conversation with Paul. Beach said Paul approved the loan during the telephone conversation. He claimed Paul said approval of the deal sounded like “a no brainer,”
Paul remembered having a telephone conversation with Beach about the loan, but he was adamant that he did not approve it.
After the phone conversation with Paul, Beach drafted a loan agreement for the $400,000 transaction,
Sobocienski was copied with both emails, at her DDC email address. After Sylvain returned the signed loan agreement, she replied the same day by email to both him and Beach:
Ray. Thanks to [Beach] BIG TIME on this one. He called our board President about other issues and on a side note brought this opportunity up. I was so thankful he had the conversation. I will sign it and work with our bankers to transfer funds. Let me know your preference to transfer.116
Sylvain responded:
[Beach] is truly the rain maker!!! ... we just got done with the financials and we are looking great. We will turn right back and transfer $100K that we received with the 10% interest. Now, we have three months to really pick and choose what group of investors do we need to bring on.117
The $100,000 referenced in this email was the earlier HCO loan, which SAI was going to repay with the newly borrowed funds. SAI did repay the $100,000 in June 2012, but without interest.
Sobocienski did not sign the loan agreement on behalf of Deloycheet. On Monday, May 21, at 11:38 a.m., Beach forwarded Sylvain’s “Let’s roll” email to Paul, with the attached loan agreement.
Less than an hour after Beach’s email to Paul, at 12:24 p.m., Sobicienski sent an email from her DDC email address to a bank representative at Wells Fargo, to arrange a wire transfer of $400,000 from Deloycheet’s general account to SAI’s bank account.
Just over an hour later, Beach sent an email from his DDC email address to Christopher Clifford, another bank representative at Wells Fargo.
When the May 21 emails to Wells Fargo were sent, neither Beach nor Sobocienski had received a signed copy of the loan agreement, or any other response, from Paul. In fact, the loan agreement was never signed by any representative of Deloy-cheet.
On Tuesday, May 22, 2012, Mr. Clifford responded to Beach’s email. He copied So-bocienski and Joellen Weatherholt, another Wells Fargo representative. Clifford expressed several concerns about the transfer that Beach had requested, one being that the loan described by Beach,
The following day, in response to Clifford’s email, Weatherholdt sent an email to Sobocienski and Paul, with copies to Beach and Clifford.
On Friday, May 25, 2012, Sobocienski forwarded the email chain between Beach, Clifford, and Weatherholdt to Aloysius, without message.
Also on May 25th, Beach sent an email to Sylvain, from his ANED email address, asking Sylvain to send the first $20,000 payment to ANED. He wrote, “Based on the time [Sobocienski] and I have worked directly in [SAI] initiatives in April and May, the contract with ANED, LLC should begin May 1st.”
On May 30, 2012, Beach sent an email to SAI staff clarifying that the “May retainer” should instead be sent electronically to Sobociencki’s personal bank account.
On the morning of Wednesday, May 31, 2012, Aloysius emailed Clifford at Wells Fargo to find out if the $400,000 transfer to SAI had actually occurred.
8. Fallout.
A. Deloycheet’s General Account is Overdrawn.
Deloycheet’s largest source of annual income, the 7(j) funds from HCO, is received
B. Spray Foam Transaction.
DDC’s spray foam business fell apart immediately after Beach left Deloycheet. As discussed above, the spray foam deal approved by the DDC board contemplated payments of $1,000 per week to NDSF’s “key supervisor,” or a total of $52,000 annually. The key supervisor was Beach’s son, Corey, who was 20 years old at the time DDC approved the transaction. Beach failed to disclose this fact to either Deloy-cheet or Sobocienski.
After the spray foam equipment was purchased in mid-May, NDSF started to send weekly invoices to DDC for $1,000 for “spray foam consulting” services. On May 30, 2012, DDC made its first payment of $1,000 to NDSF.
After Beach left Deloycheet, the spray foam business was shut down. Between June 5 and June 24, 2012, copies of various receipts were emailed to Beach’s DDC email address from Super Cheap Signs, for orders of business cards, yard signs, and other items related .to NDSF, a company that supposedly was already in business when DDC purchased it.
C.Sylvain Breaks Ties with Beach and Sobocienski.
Sylvain paid $40,000 to Beach and Sobo-cienski between May and June 2012. In early June 2012, Sylvain was still desperate for an investor, and the amount sought had increased to $1.8 million.
Beach and Sobocienski did not succeed in finding an investor for SAI. On June 28, 2012, when Sobocienski emailed Sylvain a second invoice for $20,000, Sylvain declined to make the payment. He responded that he was not comfortable with how things were going, and that they had not yet come to an agreement “on this.”
D.SAI Files Bankruptcy.
SAI filed a chapter 11 petition in the Bankruptcy Court for the Eastern District of Virginia on August 16, 2012.
E.Deloycheet Files Suit and Beach Files Bankruptcy.
In 2013, Deloycheet initiated a civil action against Beach, Sobocienski, SAI, and Sylvain in state Superior Court. Its first amended complaint named only Beach and Sobocienski as defendants. It asserted claims for fraud, conspiracy to commit fraud, breach of fiduciary duties, conversion, ■violation of the Alaska Unfair Trade Practices Act (“UTPA”), and punitive damages. Deloycheet sought joint and several liability on all claims, plus an award of costs and its actual attorney fees.
The state court action continued as to Sobocienski. Trial was rescheduled and the matter was tried by a jury. The jury returned a verdict against Sobocienski and in favor of Deloycheet for $400,000, plus punitive damages and treble damages under the UTPA. It did not apportion damages between Sobocienski and Beach.
Deloycheet has filed a separate civil action against SAI and Sylvain, seeking to recover $400,000 in damages based on claims of breach of contract, and aiding and abetting breach of fiduciary duty. That action is still pending, but is not going forward due to difficulties in effecting service on the defendants.
Trial of the instant adversary proceeding was held on July 18 and 19, 2016. Oral argument on Beach’s motion for summary judgment preceded the start of trial on July 18, 2016. An order granting, in part, and denying, in part, that motion was entered on July 21, 2016. Under that order, Deloycheet’s nondischargeability claim under 11 U.S.C. § 523(a)(4) was dismissed.
B. ANALYSIS.
Deloycheet contends Beach committed fraud in connection with the $400,000 loan to SAI. It also seeks treble damages under the Alaska UTPA; punitive damages, and an allocation of fault between Beach and Sobocienski. Deloycheet submits that Beach’s liability should be excepted from discharge under § 523(a)(2)(A), which excludes from discharge debts obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debt- or’s or an insider’s financial condition.”
1. Jurisdiction
The court has jurisdiction over this matter under 28 U.S.C. § 157(b)(2)(I), 28 U.S.C. § 1334(b), and the district court’s order of reference. It has the authority to both determine the dischargeability of De-loycheet’s claim, and to liquidate the underlying debt under applicable state law.
2. Burden of Proof
In nondischargeability actions under § 523(a), a creditor must prove the elements of its claim by a preponderance of the evidence.
3. Deloycheet’s Claim Under § 523(a)(2)(A), and its Underlying Claim for Fraud.
Deloycheet contends Beach is liable to it “for money” obtained by “false pretenses, a false representation, or actual fraud,” and such debt should be excepted from discharge under § 523(a)(2)(A).
(1) that the debtor made the representations; (2) that at the time he knew they were false; (3) that he made them with the intention and purpose of deceiving the creditor; (4) that the creditor relied on such representations; and (5) that the creditor sustained alleged loss and damage as the proximate result of such representations.161
Alaska law substantially mirrors these requirements to establish the tort of fraudulent misrepresentation.
The terms in § 523(a)(2)(A) are “construed to incorporate the general common law of torts,” and “the most widely accepted distillation of the common law of torts [is] the Restatement (Second) of Torts (1976).”
Deloycheet’s fraud claim is premised upon misrepresentations Beach made to Paul in soliciting the $400,000 loan. De-loycheet further contends that Beach is liable for fraudulent misrepresentation because he failed to disclose material facts within his knowledge when he solicited its participation in this transaction. When a § 523(a)(2)(A) claim is based on fraudulent nondisclosure, a plaintiff is not required to
A. Beach Made Representations and Omitted Material Facts.
Deloycheet’s underlying fraud claim and its claim to except that debt from discharge under § 523(a)(2) both hinge upon what Beach told, and did not tell, Deloycheet’s president, Eugene Paul, when he pitched the loan in the May 18, 2012 telephone conversation. Beach phoned Paul at his home in Holy Cross, and proposed that Deloycheet make a short term loan to SAI in the amount of $400,000. Beach assured Paul that the $400,000 loan was a good opportunity for Deloycheet because it offered a 20% return on the investment in just six months. He said Paul responded, “You mean we wouldn’t have to shift workers to any disasters [in Minot] and we could make $80,000 on that deal?” Beach testified that this “was the gist of the conversation.”
During this conversation Beach failed to mention thqt SAI needed the loan to meet payroll despite having earlier borrowed $100,000 from HCO, which loan remained unpaid. Furthermore, Beech failed to disclose that SAI needed the additional loan because he had been unable to procure capital for SAI in excess of $1.5 million so that it could continue operations, and that such an investment would still be required despite Deloycheet’s $400,000 loan. Nor did Beach disclose to Paul that he and Sobocienski had tendered their termination notices to Deloycheet, which would become effective one week from the day of their phone conversation. Finally, Beach never mentioned that he and Sobocienski had been, and were currently, working for the borrower, and would be receiving payment for their work for SAI from the $400,000 loan.
In sum, Beach represented that the loan to SAI would be a good investment for Deloycheet, based on his professional judgment as a person working in Deloycheet’s best interests.
B. Whether Beach Knew the Representation that the Loan was a “Good Opportunity” for Deloycheet was False.
The second element in the fraudulent misrepresentation analysis requires proof that Beach knew his representations were false at the time made.
Beach’s testimony on this point is consistent with his actions, as well as the tenor of his contemporaneous emails. At the time he proposed the $400,000 loan, he remained optimistic about finding an appropriate investor for SAI that would enable it to succeed. SAI’s success necessarily included, in Beach’s mind, repayment of the $400,000 loan. While this appears to have been unsupported by any rigorous financial analysis, Beach had received some financial projections from SAI that may be said to support this optimism.
The court finds Beach to be credible in his subjective belief that the loan was a “good investment” for Deloycheet at the time he proposed the loan to Paul. This does not, however, end the analysis of Deloycheet’s claims. While the court is willing to accept that Beach believed that the loan was good for Deloycheet, he clearly omitted material facts that should have been disclosed to Paul prior to seeking a decision on the loan. Beach represented that the proposed loan was a good opportunity in his capacity as a person who had been charged to find business opportunities for Deloycheet and its subsidiaries. His recommendation necessarily carried with it the implied representation that he had evaluated the. loan and knew of no materially adverse facts that should be considered.
Whether or not a partial disclosure of the facts is a fraudulent misrepresentation depends upon whether the person making the statement knows or believes that the undisclosed facts might affect the recipient’s conduct in the transaction in hand. It is immaterial that the defendant believes that the undisclosed facts would not affect the value of the bargain which he is offering. The recipient is entitled to know the undisclosed facts in so far as they are material and to form his own opinion of their effect.175
As previously established with the HCO loan and the spray foam transactions, De-loycheet relied upon Beach’s analysis and recommendation for each of these opportunities, perhaps too much so. Such reliance, however, was premised upon Beach’s employment on Deloycheet’s behalf, and the corresponding tenet that he was providing his services with Deloycheet’s best interests in mind.
C. Beach had the Requisite Intent for a Fraudulent Misrepresentation when he Omitted Material Facts.
Deloycheet must also establish that Beach omitted these facts with the intention and purpose of deceiving it.
Beach testified that it was “common knowledge” that he and Sobocienski would be working for other companies after they changed their status with Deloycheet from employees to independent, professional managers. Yet, no other evidence supports this proposition, and the court does not find his testimony to be credible on this point. Specifically, Aloysius testified that no one knew about Beach’s or Sobocien-ski’s connections with SAI until after they-had transferred the $400,000 to SAI and left Deloycheet. She also testified that, in spite of the new professional manager contracts, Deloycheet still expected Beach to do the same job he had been doing before. Indeed, nothing appears to have changed for either Beach or Sobocienski upon becoming independent contractors; they had the same offices, same responsibilities, and received the same pay. In fact, Sobocienski directed Wells Fargo to transfer the $400,000 to SAI in her capacity as chief executive officer for Deloycheet.
Similarly, during the critical May 18 phone conversation with Paul, Beach never disclosed that he and Sobocienski had tendered their resignation and would be leaving Deloycheet to work for SAI, shortly after procuring the $400,000 loan. The resignation letter that Sobocienski signed on Beach’s behalf was dated just three days prior to this phone conversation, and mailed to Paul’s attention at a P.O. Box in Anchorage. But Paul lived in Holy Cross, and was at that location when the phone conversation with Beach occurred. Aloysi-us testified that the letter was not received until after the loan had funded, and was simply placed in a file. Aside from Sobo-cienski, no one at Deloycheet knew, at the time Beach phoned Paul about the loan, that either of them had resigned.
At the time of the May 18 phone call, Beach was working for the lender and borrower in the proposed loan transaction. He kept secret both his employment with SAI and his proffered resignation from Deloycheet. Beach and Sobocienski then pushed through the funding of the transaction prior to execution of the proposed loan agreement, or even before any discussion of that document could take place. Moreover, they caused the loan to be funded knowing that Deloycheet’s board of directors had recently reprimanded them for not presenting the HCO loan to the Deloy-cheet board before completing that transaction for $100,000—which remained unpaid by SAI.
The speed with which Beach and Sobo-cienski transferred the funds to SAI after Beach’s phone call with Paul further sup
■ Finally, the court finds that Beach’s involvement and dealings with the spray foam transaction further color his dealings with Deloycheet. Roughly a month before his resignation and the proposed loan, Beach clearly misrepresented the fundamental precepts of that transaction for his family’s benefit. He represented that DDC would be purchasing an existing business with an experienced “key supervisor.”
The above evidence establishes that Beach omitted material facts from his presentation to Paul with the intent to deceive him into authorizing the loan to SAI.
D. Beach had a Duty to Disclose the Material Facts.
The omission of a material fact will support a claim for fraudulent misrepresentation only when the defendant was under a duty to disclose such fact.
Beach represented that the $400,000 loan to SAI was a good opportunity for Deloycheet. In making such a representation, he implied that he knew of no facts that would suggest otherwise, and was working in Deloycheet’s best interests. In short, Beach gave Paul a positive recommendation regarding the prospective $400,000 loan to SAI, withholding material facts concerning his, and Sobocienski’s roles in the transaction, and SAI’s desperate need for the money. The evidence establishes that Beach omitted these facts precisely because he knew that they would be material to Deloycheet’s decision to lend additional monies to SAI. Consequently, although Beach may have
E. Deloycheet Sustained a Loss as a Proximate Cause of Beach’s Misrepresentations.
As a proximate result of Beach’s fraudulent misrepresentation, Deloycheet has been damaged in the amount of the unpaid $400,000 it loaned to SAI. Moreover, there is no requirement that Beach received a direct or indirect benefit on account of his fraud, in order for all such damages to be nondischargeable.
4. Deloycheet’s § 523(a)(6) Claim.
Deloycheet also contends Beach’s liability should be excepted from discharge under § 523(a)(6) as a “willful and malicious injury by the debtor to another entity or to the property of another entity.”
To find a willful and malicious injury in this instance, Beach must have desired to cause the consequences of his act, e.g., he must have intended that De-loycheet suffer the loss of the $400,000.
Because the evidence does not support a finding of “willful injury,” the court need not evaluate the second prong of § 523(a)(6), which is whether Beach committed a malicious injury. Deloycheet’s § 523(a)(6) claim will be dismissed, with prejudice.
5. Deloycheet’s Claim for Treble Damages Under the UTPA, and Punitive Damages.
A. Beach has Violated the UTPA.
Under AS 45.50.471(a), “[unfair methods of competition and unfair or
The first element, which requires that the defendant be engaged in trade or commerce, encompasses both consumer and business-to-business transactions.
The second element is also satisfied. The UTPA lists 57 nonexclusive instances of an unfair or deceptive act or practice, including:
using or employing deception, fraud, false pretense, false promise, misrepresentation, or knowingly concealing, suppressing, or omitting a material fact with intent that others rely upon the concealment, suppression, or omission in connection with the sale or advertisement of goods or services whether or not a person has in fact been misled, deceived or damaged.195
Beach elected to forego his employment with DDC, and instead became an independent contractor charged with finding business opportunities for Deloycheet and its subsidiaries. In this capacity, he provided services to Deloycheet. In this instance, the fraudulent misrepresentation did not arise from Beach’s sale of his services to Deloycheet; the parties had previously entered into that arrangement. But, it was in the conduct of those commercial services that the misrepresentation arose. The Alaska Supreme Court has made it clear that once a party’s actions place him in direct competition with the other party, UTPA claims apply.
Under AS 45.50.531(a), a prevailing plaintiff may recover “for each unlawful act or practice three times the actual damages or $500, whichever is greater.”
C. Deloycheet is Entitled to Recover Full Reasonable Attorney Fees.
Under the UTPA, a prevailing plaintiff is also entitled to an award of costs “as provided by court rule and full reasonable attorney fees at the prevailing reasonable rate.”
D.The Damages under the UTPA are Nondischargeable.
Deloycheet seeks to declare the damages awarded under Alaska’s UTPA nondischargeable under Cohen v. de la Cmz.
7. Deloycheet’s Claim for Punitive Damages.
Deloycheet also seeks an award of punitive damages. In Alaska, punitive damages may be awarded if a
Deloycheet has established by a preponderance of the evidence that Beach made fraudulent misrepresentations that induced it to make the $400,000 loan to SAI. As a consequence of that fraud, De-loycheet has been awarded compensatory damages of $400,000, plus treble damages under the UTPA. Deloycheet is also awarded its full actual attorneys fees, and its costs, as provided under the UTPA. These sums already appear to be well beyond Beach’s ability to repay. At the time of trial he was working as a car detailer and youth pastor. Under the facts of this case, the court finds that the deterrence and punishment goals served by an award of punitive damages are already met by the treble damage, cost and full attorney fee awards given under the UTPA. For this reason, no punitive damages will be awarded.
8. Allocation of Fault.
At the close of trial, Deloycheet asked this court' to allocate fault equally between Beach and Sobocienski for the loss of the ■ $400,000, on the rationale that they were partners in ANED and worked equally to facilitate that loan. Its earlier trial brief r|oted that Deloycheet expected Beach to seek such allocation under AS 09.17.080(a).
In his closing, Beach raised the specter of Deloycheet obtaining, and seeking to recover upon, three separate $400,000 judgments; one against Sobocienski in state court, one against him in the bank
Beach’s argument is somewhat disingenuous. His bankruptcy filing, and the resultant imposition of the automatic stay, precluded any apportionment of damages at the state court trial. He was a named codefendant in the state court action. His petition was filed the same day the state court trial was initially set to commence,
The purpose of AS 09.17.080 “is to ensure that fault for an incident is accurately litigated by preventing a party from blaming an ‘empty chair’ defendant for the injuries at issue.”
(1) the amount of damages each claimant would be entitled to recover if contributory fault is disregarded; and
(2) the percentage of the total fault that is allocated to each claimant, defendant, third-party defendant, person who has been released from liability, or other person responsible for the damages unless the person was identified as a potentially responsible person, the person is not a person protected from a civil action under AS 09.10.055, and the parties had a sufficient opportunity to join that person in the action but chose not to; in this paragraph, “sufficient opportunity to join” means the person is
(A) within the jurisdiction of the court;
(B) not precluded from being joined by law or court rule; and
(C) reasonably locatable.214
AS 09.17.080(c) requires the court to determine the amount of damages to be awarded to each claimant, and to also determine “each party’s equitable share of the obligation to each claimant in accordance with the respective percentages of fault” as determined by the trier of fact.
CONCLUSION
James Beach was retained by Deloy-cheet to find business opportunities for it and its subsidiaries. Days before leaving Deloycheet, and while secretly working for SAI, he fraudulently misrepresented that the $400,000 loan SAI sought from Deloy-cheet was a good deal by omitting his relationship with both the lender and borrower, and failing to disclose SAI’s increasingly desperate financial situation. While Beach may have subjectively believed that the loan was a good transaction for Deloycheet, his unqualified assurance was misleading because it failed to disclose any matters contrary to his own purpose in procuring the loan for SAI, As a proximate result of Beach’s fraudulent misrepresentations, Deloycheet has been damaged in the sum of $400,000, Such fraudulent misrepresentations also entitle Deloycheet to recover treble damages under the UTPA, plus its costs and full reasonable attorney fees, in an amount to be determined. Because all such amounts arise from Beach’s fraudulent misrepresentations, they are nondischargeable under 11 U.S.C. § 523(a)(2)(A).
Deloycheet also sought to except Beach’s liability from discharge as a willful and malicious injury under 11 U.S.C. § 523(a)(6). Because it has failed to establish the elements of this claim by a preponderance of the evidence, Deloycheet’s § 523(a)(6) claim will be dismissed with prejudice. Further, in light of the amounts awarded the court declines to also award punitive damages.
The court will enter an order setting a deadline for Deloycheet to file its fee application, and for Beach to file his response to that application, A final judgment shall be entered after Deloycheet’s fee award has been determined.
, Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
. The transaction that gave rise to Deloy-cheet's § 523(a) claims occurred in May 2012. This detailed statement of facts is required, however, because events germane to that transaction occurred as early as mid-2011.
. Stipulated Facts, ECF No. 34, ¶ 1.
. Id., 112.
. Pl.’s Ex. 93, Am. and Restated Bylaws of Deloycheet, Inc., at D01119 (Article IV.6), D01122 (Article VI.2). Article VI.2 specifically provides that "[n]o loans shall be contracted on behalf of the corporation and no evidence of. indebtedness shall be issued in its name unless authorized by a resolution or unanimous written consent of the Board of Directors. Such authority may be general or confined to specific instances.”
. The parties have stipulated that Beach was "Deloycheet's Executive Vice President for Business Development from mid-2011 until May 2012.” Stipulated Facts, ECF No. 34, ¶ 4. However, the position announcement for Beach’s position named DDC as the employ- ■ er, as did Beach’s Employment Contract. See Deft.'s Exs. A, B, For the purposes of this decision, this distinction is immaterial. Beach changed his employment capacity in February 2012 and became an independent “professional manager” for Deloycheet. See Pl.’s Ex. 41.
. Stipulated Facts, ECF No. 34, ¶ 3.
. Deft.'s Ex. A.
. Id.
. At trial, Aloysius asserted Sobocienski was the one who brought Beach on, while Sobo-cienski said Aloysius was the one who hired Beach.
. Deft.’s Ex. B (Employment Agreement), ¶¶ 5.1, 5.2.
. Beach was working as a youth pastor at the time he applied for the position with DDC. At the time of trial, he had resumed this work and was also employed as a car detailer. He did testify that he had worked as a chief executive officer for a renewable energy company and as a marketer for a couple of other energy companies prior to working for DDC.
. Deft's Ex. B, ¶ 3.
. Id.
. Id., at ¶¶ 6.2, 6.3. Receipt of the severance pay was conditioned on Beach's execution of a full release "prepared or approved” by DDC. Id., ¶ 6.3.
. Pl.’sEx. 2.
. Stipulated Facts, ECF No. 34, ¶ 5.
. Id.
. Id., ¶8.
. PL’s Ex. 2, at 1-2. Under the Teaming Agreement, the parties planned to approach the Department of Health and Human Services, the Department of Interior, and the Department of Justice "to secure contracts for ... professional services and business solutions,” Id. at 1-2.
. Id. at 2, ¶ II.B.2.
. Stipulated Facts, ECF No. 34, ¶ 8.
. Deft.'s Ex. H at D00029.
. Id.
. Id. at D00030. Sylvain wrote, "I have to hire new people, and increase my servers [sic] capacity. I have to bring 6 new employees to the US and supplement my external IT staff by 100% (from 3 to 6),"
. Id.
. Deft's Ex. H at D00033.
. Id. at D00035.
. Id. at D00035-48.
. Id. at D00034.
. Deft.’s Ex. H at D00047-48.
. Pl.s’ Ex. 8.
. Id.
. Id.
. Pl.’s Ex. 11 at D00050.
. Id.
.Pl.’s Ex. 9 at D00052. Sylvain’s email included a proposed acquisition plan for HCO to obtain a 20% ownership interest in SAI. The transaction was described as a "hybrid purchase” for "payroll support and cash injection.” SAI’s financial projections for 2012 reflected projected income of $1,793,838, projected expenses of $1,680,904, for total net income of $210,623. Projected cash flow as of December 2012 was $491,349. Id. at D00065. A table showing "Sylvain’s Pipeline” listed seven government contracts with expiration dates at various times in 2012, but six of those contracts had renewal options for terms of between two and four years. The table reflected an overall contract value of $2,408,868, a "value” of $2,207,368, a monthly amount of $229,482, and "unfunded value”
. Pl.’s Ex. 18.
. Id. at D00090.
. Id. at D00087.
. Id. at D00092.
. Pl.'s Ex. 21.
. Id. at D00099.
. Id. at D00100.
. Stipulated Facts, ECF No. 34, ¶ 10.
. Pl.’s Ex. 32. There is no indication that this email went to Beach or Sobocienski; Beach testified that he did not recall receiving it.
. Stipulated Facts, ECF No. 34, ¶ 11.
. PL’s Exs. 41, 42.
. Stipulated Facts, ECF No. 34, ¶ 12.
. Id, at ¶ 13; see also Pl.'s Ex. 43.
. Pl.'s Ex, 43 at D00116.
. Pl.’s Ex. 41 at D00116-117; Pl.’s Ex. 42 at D00110-111.
. Pl.’s Ex. 41 at D00117-118; Pl.’s Ex. 42 at D00111-112.
,Pl.'s Ex. 45 at D00171, The minutes state that Paul gave a verbal report that he worked with Sobocienski and an attorney “to draft up two contracts for two employees.” Id, However, during his deposition, Paul testified that he had reviewed and signed the two agreements, but had not discussed them with anybody. See Suppl. to Deloycheet’s Depo. Designations, ECF No. 38 at 4-5 (Excerpt of Depo.' of E. Paul, 67:13-15; 70:5-13).
. Stipulated Facts, ECF No. 34, ¶ 14.
. Id, Beach’s former employment contract had been with DDC. Sobocienski’s initial employment contract is not in the record.
. PL ⅛ Ex. 45 at D00172-173.
. Id. at D00173,
. Pl.'s Ex. 45 at D0074.
. Pl.’s Ex. 36. Beach sent this email from his DDC email account.
. Id.
. Id.
. Pl.’s Ex. 40. This document was received by the Alaska Division of Corporations two months later, on April 24, 2102.
. Pl.’s Ex. 38. The proposal states that it was presented on February 7, 2012.
. Id. at D00149.
. Id. at D00150.
. Pl.’s Ex. 38 atD00151.
. PL’s Ex. 46 at D00181.
. Id. at D00182.
. Id. at D00183, ¶ 1.4.
. Id. at D00181.
. PL's Ex. 47atTS284.
. Id.
. PL’s Ex. 53 at CB0729.
. Id.
. Pl.'sEx. 55.
. Id. at CB0736.
. Id.
. Pl.’s Ex. 49. Beach used his DDC email account to make this contact.
. Pl.’s Ex. 50.
. Id.
. PL’s Ex. 58.
. Id. at TS 327.
. Id. at TS 333.
. Pl.’sEx. 22.
. Id. at 3.
. See PL's Ex. 70.
. Id. at D00801.
. Id. at D00802,
. Id. at D00799.
. PL’s Ex. 70 at D00799.
. PL’s Ex. 72.
. Id. at D00804.
. Id. at D00805.
. Pl.’s Ex. 77, at D00860.
. Id. at D00848.
. Id. at D00850-51, ¶¶ lO.b, lO.d.
. Pl.’s Ex. 73.
. Id. at D00806-807.
. Id. at D00809.
. Pl.'s Ex. 74 at D00811-12.
. Pl.’s Ex. 63.
.Id. at D00191.
. Id.
. Stipulated Facts, ECF No. 34, ¶ 15.
. PL’s Ex. 66 at CB0547.
. Stipulated Facts, ECF No. 34, ¶ 15.
. Id., ¶ 16.
.On this point, Beach said he didn't tell Paul that the loan would be used for payroll "because that wasn't necessarily the case.” Yet, he conceded that HCO’s loan had been used on "job specific payrolls” for SAL Further, in subsequent emails to Wells Fargo regarding the $400,000 loan, Beach mentioned that the borrowed funds would be used for SAI's payroll.
. See Ex. C to Deloycheet’s Depo. Designations, ECF No. 33-3 at 10 (Depo. of E. Paul, 127:—128:6; 131:16-132:6).
. Id. (Depo. of E. Paul, 132:7—13);
. Id. at 10-11 (Depo. of E. Paul, 130:2-131:11; 144:11-146:25).
. Stipulated Facts, ECF No. 34, ¶ 17. Beach testified that he “pulled” a sample loan agreement off line, and edited it before sending it to Sylvain.
. Pl.’s Ex. 67; see also Pl.’s Ex. 66 at 2.
. Pl.’s Ex. 67 at CB0365.
. Pi’s Ex. 66 at CB0547.
. Id.
. Stipulated Facts, ECF 34, ¶ 11.
.Pl.’s Ex. 67.
. Id. at CB036S
. Pl.’s Ex. 68; see also Stipulated Facts, ECF No. 34, ¶ 20 (“On Monday, May 21, 2012, Sobocienski sent a letter to Wells Fargo bank asking that the $400,000 be transferred to [SAI].”).
. Pl.’s Ex. 68 at D00200.
. Id. at D00201.
. Pl.’s Ex. 69 at 3.
. Id. The $3.2 million figure matches the number shown on the SAI overview that had been prepared to present to the potential doctor investor in late April 2012. See Pl.s Ex. 58 at TS 328. While the overview did show that nine government contracts had been awarded, with a value of $3.2 million, two of these contracts were to end in September 2012, one had a start date of June 1, 2012, and two didn’t start until October 1, 2012, All the other contracts were listed as being "in R & D" or “pending,” and almost all of them had start dates of October 1, 2012 or later. Id. There is nothing in the record to show that the SAI overview was shared with Paul, or anyone else at Deloycheet.
. Pl.’s Ex. 69 at 3.
. Stipulated Facts, ECF No. 34, ¶ 19.
. Pl.’s Ex. 69 at 2.
. Id. atl.
. Id. (emphasis in original).
. Id.
. Pl.’s Ex. 71 at CB0825.
. Id.
. Pl.’s Ex, 79.
. Pl.’s Ex. 83 at D00206-07.
. Id. at D00205; see also Stipulated Facts, ECF No, 34, ¶ 20.
. Id. at D00205.
. See PL’s Ex. 69.
. Id.
. Id.
. Beach testified that he thought he had told Sobociensld about this, but Sobocienski stated that she did not know about Corey's involvement until after Deloycheet filed its state court civil action.
. See Pl.’s Ex. 75.
. Pl.’s Ex. 74 at D00821.
. Id. at D00814, D00816, D00822.
. Id. at D00817.
. PL’s Ex. 76.
. Pl.'s Ex. 77. Aloysius testified that no one at Deloycheet knew that Beach’s son Corey was the person running the spray foam business, or had even seen the contract, until the collection letter was received.
. Pl.’s Ex. 86 (email chain between Sobo-cienski, Sylvain, and Beach, spanning June 10 to July 8, 2012). In this chain of correspondence, Beach noted, "If the $1.8M only increases annual revenue by $2.5M, that may be a hard sell.” Id. at CB0552.
. Id. at CB0552.
. PL’s Ex. 84 at CB0832.
. Id. at CB0832-33.
. Pl.’s Ex. 87.
. ECFNo. 1, Ex. A.
. 11 U.S.C. § 523(a)(2)(A).
. Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010)(citing Klapp v. Landsman (In re Klapp), 706 F.2d 998, 999 (9th Cir. 1983)).
. Deitz v. Ford (In re Deitz), 760 F.3d 1038, 1049-50 (9th Cir. 2014)(citing Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1018 (9th Cir. 1997)).
. Grogan v. Garner, 498 U.S. 279, 289, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); see also In re Deitz, 760 F.3d at 1050,
. DeNuptiis v. Unocal Corp., 63 P.3d 272, 278 n.14, 279 (Alaska 2003)(collecting cases) (preponderance of the evidence standard applies to civil fraud cases).
. United States v. Arnold and Baker Farms (In re Arnold and Baker Farms), 177 B.R. 648, 654 (9th Cir. BAP 1994), aff'd 85 F.3d 1415 (9th Cir. 1996); see also Kelley v. Locke (In re Kelley), 300 B.R. 11, 17 (9th Cir. BAP 2003)(citing In re Arnold and Baker, 177 B.R. at 654); Saxton v. Harris, 395 P.2d 71, 72 (Alaska 1964)(under preponderance of evidence standard, plaintiff must establish that "the asserted facts are probably true,” rather than that they are "highly probable.”).
. 11 U.S.C. § 523(a)(2)(A).
. Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 827 (9th Cir. 2002)(quoting Household Credit Servs. v. Ettell (In re Ettell), 188 F.3d 1141, 1144 (9th Cir. 1999)).
. In Alaska, the essential elements of the tort of fraudulent misrepresentation are; "(1) a false representation of fact, (2) knowledge of the falsity of the representation, (3) intention to induce reliance, (4) justifiable reliance, and (5) damages.” Jarvis v. Ensminger, 134 P.3d 353, 363 (Alaska 2006)(citing City of Fairbanks v. Amoco Chem. Co., 952 P.2d 1173, 1176 n.4 (Alaska 1998)).
. Field v. Mans, 516 U.S. 59, 70 and n.9, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995).
. Id.; see also In re Apte, 96 F.3d 1319, 1324 (9th Cir. 1996); Citibank (South Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1087 (9th Cir. 1996).
. See, e.g., Lightle v. State, Real Estate Com’n, 146 P.3d 980, 983-84 (Alaska 2006); Anchorage Chrysler v. DaimlerChrysler, 129 P.3d 905, 915 (Alaska 2006); Carter v. Hoblit, 755 P.2d 1084, 1086-87 (Alaska 1988).
. In re Apte, 96 F.3d at 1323. Similarly, Alaska law requires only that a plaintiff show that the defendant intend or had reason to expect the misrepresentation to influence the conduct concerning the transaction in question. Jarvis v. Ensminger, 134 P.3d at 363; Lightle v. State, Real Estate Com'n, 146 P.3d at 983.
. In re Apte, 96 F.3d at 1323.
. Id. (quoting Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972)).
. Id. (quoting Titan Group, Inc. v. Faggen, 513 F.2d 234, 239 (2d Cir. 1975), cert denied 423 U.S. 840, 96 S.Ct. 70, 46 L.Ed.2d 59 (1975)).
. See Restatement (Second) of Torts § 525 cmt. d (1977)("Strictly speaking, 'fact' includes not only the existence of a tangible thing or the happening of a particular event or the relationship between particular persons or things, but also the state of mind, such as the entertaining of an intention or the holding of an opinion, of any person, whether the maker of a representation or a third person.”).
. See Restatement (Second) of Torts § 525 cmt. f (1977)("a statement that is in form a prediction or promise as to the future course of events may justifiably be interpreted as a statement that the maker knows of nothing which will make the fulfillment of his prediction or promise impossible or improbable.”); see also Restatement (Second) of Torts § 525 cmt. f, Ill. 3.
. In re Diamond, 285 F.3d 822, 827; Lightle v. State, Real Estate Com'n, 146 P.3d at 984 ("To be 'fraudulent,’ then, a representation need only be made with 'scienter,' in other words, the necessary 'knowledge of the untrue character.’).
.See Restatement (Second) of Torts §§ 525, 529 cmt. a (1977)("a statement that contains only favorable matters and omits all reference to unfavorable matters is as much a false representation as if all the facts stated were untrue.’’). The Restatement includes an analogous illustration: “A, knowing that the X Corporation is hopelessly insolvent, in order to induce B to purchase from him shares of its capital stock assures B that the shares will within five years pay dividends that will amount to the purchase price of the stock, B is justified in accepting these statements as an assurance that A knows of nothing that makes the corporation incapable of making earnings
. Carter v. Hoblit, 755 P.2d at 1086-87 (quoting Restatement (Second) of Torts § 529 (1977)).
, Restatement (Second) of Torts § 529 cmt. b (1977).
, The court uses employment in the most generic sense here, cognizant of the change in Beach's and Sobocienski’s legal status to "independent contractors.”
. In re Diamond, 285 F.3d at 827. Alaska law differs on this element. It requires that the misrepresentation be made fraudulently, but "does not require the maker of a false statement to act with the specific ‘intent to deceive'; rather, it requires the maker to have reason to expect that the other’s conduct will be influenced.” Lightle v. State, Real Estate Com'n, 146 P.3d at 984 (citing Restatement (Second) of Torts, § 526 cmt. a (1977)). The court will discuss the more rigorous requirement of actual intent to deceive imposed under § 523(a)(2)(A), which necessarily encompasses an expectation to influence action.
. Retz v. Samson (In re Retz), 606 F.3d 1189, 1199 (9th Cir. 2010)(citing Devers v. Bank of Sheridan, Mont. (In re Devers), 759 F.2d 751, 753-54 (9th Cir. 1985)); Tustin Thrift and Loan Ass'n v. Maldonado (In re
. The timing of the transaction is also particularly significant because Deloycheet receives its annual cash infusion from the 7(j) monies in May.
. Pl.’sEx. 70.
. In re Apte, 96 F.3d at 1323; In re Eashai, 87 F.3d at 1089; Yim v. Chaffee (In re Chaffee), 2017 WL 1046057 *8 (B.A.P. 9th Cir. March 17, 2017).
.Restatement (Second) of Torts, § 529, 551(2)(b) (1977); Lightle v. State, Real Estate Com’n, 146 P.3d at 986; Barnes v. Belice (In re Belice), 461 B.R. 564, 580 (9th Cir. BAP 2011).
. In re Sabban, 600 F.3d at 1222-23 (citing Muegler v. Bening, 413 F.3d 980, 983-84 (9th Cir. 2005)).
. 11 U.S.C. § 523(a)(6).
. Carrillo v. Su (In re Su), 290 F.3d 1140, 1146 (9th Cir. 2002).
. Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1207 (9th Cir. 2001)(citing Kawaauhau v. Geiger, 523 U.S. 57, 64, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)(emphasis in original)).
. In re Su, 290 F.3d at 1142.
. Id. at 1144.
. Id. at 1143 ("[w]e now hold that unless ‘the actor desires to cause the consequences of his act, or ... believes that the. consequences are substantially certain to result from it,’ he has not committed a ‘willful and malicious injury.').
. AS 45.50.471(a).
. Alaska Interstate Const., LLC v. Pacific Diversified Inv., Inc., 279 P.3d 1156, 1163 (Alaska 2012); see also Western Star Trucks, Inc. v. Big Iron Equipment Serv., Inc., 101 P.3d 1047, 1049 (Alaska 2004).
. Id.
. Id.
. Compare Alaska Interstate Const., LLC, 279 P.3d 1156 (Alaska 2012); Borgen v. A & M Motors, Inc., 273 P.3d 575 (Alaska 2012).
. AS 45.50.471(b)(12).
. Alaska Interstate Const., LLC v. Pacific Diversified Invs., Inc., 279 P.3d 1156, 1171 (Alaska 2012).
. Beach does not challenge that a fraudulent misrepresentation constitutes an unfair or deceptive practice under the Alaska UTPA. See generally Hardy v. Toler, 288 N.C. 303,
. AS 45.50.531(a).
. Kenai Chrysler Center, Inc. v. Denison, 167 P.3d 1240, 1259 (Alaska 2007).
. AS 45.50.537(a).
. Borgen v. A & M Motors, Inc., 273 P.3d at 593.
. 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998).
. Id. at 218, 118 S.Ct. 1212.
. AS 09.17.020(b).
. AS 09.17.020(f). However, the UTPA does not permit apportionment of damages, where- . as punitive damages can be apportioned between multiple tortfeasors under AS 09.17.080. Donahue v. Ledgends, Inc., 331 P.3d 342, 353 (Alaska 2014).
. AS 09.17.020(c)(6), (c)(7).
. Casciola v. F.S. Air Serv., Inc., 120 P.3d 1059, 1065 (Alaska 2005).
. Id.
. Nelson v. Progressive Corp., 976 P.2d 859, 865 (Alaska 1999)(citation omitted).
. Deloycheet’s Trial Brief, ECF No. 35 at 6.
. See Deloycheet’s Reply to Opp’n to Mot. for Relief from Stay, ECF No. 17 at 3, and Ex. A thereto, filed in In re Beach, Main Case No. A15-00210-GS.
. See In re Sobocienski, Main Case No. A16-00083-GS; Deloycheet v. Sobocienski, Adv. No. 16-90012-GS.
. Cooper v. Thompson, 353 P.3d 782, 789 (Alaska 2015), reh'g denied (Aug. 18, 2015).
. AS 09.17.080(a)(emphasis added).
. AS 09.17.080(c).
. Id.
. Id.
, See McLaughlin v. Lougee, 137 P.3d 267, 272 (Alaska 2006)( “AS 09.17.080 does not require that all claims of either plaintiffs or defendants be litigated in a single case.’’).
Reference
- Full Case Name
- IN RE: Corbett James BEACH, III, Debtor. Deloycheet, Inc. v. Corbett James Beach, III
- Cited By
- 6 cases
- Status
- Published